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ONFC > SEC Filings for ONFC > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for ONEIDA FINANCIAL CORP.

Form 10-Q for ONEIDA FINANCIAL CORP.


14-Aug-2013

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section presents Management's Discussion and Analysis of Oneida Financial Corp. ("the Company's") consolidated financial results of operations and condition and should be read in conjunction with the Company's financial statements and notes thereto included herein.

When used in this quarterly report the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically declines any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

GENERAL

Oneida Financial Corp. is the parent company of Oneida Savings Bank ("the Bank"). The Company is a Maryland corporation. The Company conducts no business other than holding the common stock of the Bank and general passive investment activities resulting from the capital it holds. Consequently, the net income of the Company is primarily derived from its investment in the Bank. Our results of operations depend primarily on our net interest income. Net interest income is the difference between interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities, mortgage-backed securities and other interest-earning assets (primarily cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting primarily of deposits and Federal Home Loan Bank advances and other borrowings. Net interest income is a function of our interest rate spread, which is the difference between the average yield earned on our interest-earning assets and the average rate paid on our interest-bearing liabilities, as well as a function of the average balance of interest-earning assets compared to interest-bearing liabilities. Also contributing to our earnings is non-interest income, which consists primarily of service charges and fees on loan and deposit products and services, fees from our insurance agency, benefit consulting and risk management subsidiaries and fees from trust services, and net gains and losses on sale of investments. Interest income and non-interest income are offset by provisions for loan losses, general administrative and other expenses, including employee compensation and benefits and occupancy and equipment costs, as well as by state and federal income tax expense.

Our results of operations are also significantly affected by general economic and competitive conditions, particularly with respect to changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulation or government policies may materially affect our financial condition and results of operations.

RECENT DEVELOPMENTS

The Company announced on June 28, 2013, a quarterly cash dividend of $0.12 per share, which was paid on July 23, 2013 to its shareholders of record on July 9, 2013.

In early July 2013, Madison and Oneida counties experienced localized heavy flooding that caused damage in certain areas of our market. This damage, although localized, resulted in damage to a number of homeowners as well as an increase in costs to the local municipalities. The flooding may have affected the collateral properties securing some of our loans and may have affected the ability of some of our borrowers to repay their obligations to the Bank according to contractual terms. As a result, delinquent loans, nonaccrual loans and loan losses may increase. The Bank is generally named as a loss payee on hazard and flood insurance policies covering collateral properties and carries mortgage impairment insurance. These policies will help mitigate any losses that the Bank may otherwise sustain. In addition, New York State and FEMA are in the early stages of providing assistance to homeowners and local municipalities. Based on information to date, management does not feel that the impact of the flooding will have a material impact on the Bank's financial condition and results of operations.


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During the quarter ended March 31, 2013, the Bank received regulatory approval to reorganize the business functions of its wholly-owned subsidiaries. While the reorganization will result in changes in the net income and operations of the individual subsidiaries, it will not have an impact in the basis of presentation contained in this Form 10-Q report. For more information, see Note E - Segment Information.

At December 31, 2012, the Company completed its acquisition of Schenectady Insuring Agency, Inc., an insurance agency operating in Schenectady, New York. The Company paid $795,149 in cash and established a note payable for $1.0 million to be paid monthly over 24 months with interest at 3.00% per annum to acquire 100% of the capital stock of the Schenectady Insuring Agency, Inc. Goodwill in the amount of $1.5 million and intangible assets in the amount of $929,000 were recorded in conjunction with the acquisition. Schenectady Insuring Agency, Inc. which was merged into Bailey and Haskell Associates, Inc. effective December 31, 2012. The Company began payment on the note in 2013.

FINANCIAL CONDITION

ASSETS. Total assets at June 30, 2013 were $698.5 million, an increase of $17.1 million, or 2.5%, from $681.4 million at December 31, 2012. The increase in total assets was primarily attributable to an increase in loans receivable due to the Company retaining fixed-rate residential loan originations.

Cash and cash equivalents decreased $8.2 million, or 41.4%, to $11.6 million at June 30, 2013 from $19.8 million at December 31, 2012. The decrease in cash and cash equivalents reflects the timing of investing excess cash on hand in higher yielding loans and securities.

Trading securities decreased $1.3 million, or 23.2%, to $4.3 million at June 30, 2013 as compared with $5.6 million at December 31, 2012. Trading securities represent common and preferred equity securities that we have elected to adjust to fair value. The decrease in trading securities was due to the sale of $2.5 million of common equity securities offset by an increase in fair value during the first six months of 2013 that was reflected through the income statement.

Mortgage-backed securities decreased $1.1 million, or 1.2%, to $89.8 million at June 30, 2013 as compared with $90.9 million at December 31, 2012. Investment securities increased $13.7 million, or 8.2%, to $180.2 million at June 30, 2013 as compared to $166.5 million at December 31, 2012. The increase in investment securities was due to the reinvestment of proceeds received from sales, calls and principal pay downs during the first six months of 2013 in order to obtain a higher return than is obtainable from cash and cash equivalents.

Loans receivable, including loans held for sale, increased $13.0 million, or 4.2%, to $324.7 million at June 30, 2013 as compared with $311.7 million at December 31, 2012. We continue to maintain a diversified loan portfolio. The increase in net loan balances reflect the Company's continued loan origination efforts partially offset by loan sales activity. We sold $6.2 million in fixed rate residential loans, which represents the majority of the Company's fixed-rate residential loan origination volume during the six months ended June 30, 2013 with terms exceeding 15 years. Loan originations during the first six months of 2013 totaled $49.4 million as compared to total loan originations during the six months ended June 30, 2012 of $62.7 million. The decrease in loan originations from the prior year reflects a $6.0 million commercial construction participation loan included in the prior year originations.

LIABILITIES. Total liabilities increased by $18.9 million, or 3.2%, to $607.3 million at June 30, 2013 from $588.4 million at December 31, 2012. The increase was the result of an increase in deposits of $25.4 million offset partially by a decrease in borrowings of $5.0 million and a decrease in other liabilities of $1.5 million.

Deposit accounts increased $25.4 million, or 4.5%, to $593.7 million at June 30, 2013 from $568.3 million at December 31, 2012. Interest-bearing deposit accounts increased by $26.5 million, or 5.4%, to $519.0 million at June 30, 2013 from $492.5 million at December 31, 2012. Non-interest bearing deposit accounts decreased $1.1 million, or 1.5%, to $74.7 million at June 30, 2013 from $75.8 million at December 31, 2012. The increase in deposit accounts was primarily a result of increases in both our retail deposits and municipal deposits offered through our limited purpose commercial banking subsidiary, State Bank of Chittenango. Retail deposits increased $20.1 million or 4.3% to $482.6 million at June 30, 2013 from $462.5 million at December 31, 2012. Municipal deposits increased $5.3 million to $111.1 million at June 30, 2013 from $105.8 million at December 31, 2012. This increase was concurrent with local tax collections by various municipalities.

Borrowings decreased $5.0 million, or 83.3%, to $1.0 million at June 30, 2013 from $6.0 million at December 31, 2012. The decrease in borrowings was due to our decision not to renew the Federal Home Loan Bank ("FHLB") advances that matured during the first six months of 2013. At June 30, 2013 we had no overnight line of credit borrowings. Our overnight line of credit is used from time to time for liquidity management.


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Other liabilities decreased $1.5 million, or 10.6%, to $12.6 million at June 30, 2013 from $14.1 million at December 31, 2012. The decrease in other liabilities is primarily due to a decrease in premiums payable at our insurance subsidiary as a result of a decrease in future dated commissions at June 30, 2013 from December 31, 2012.

STOCKHOLDERS' EQUITY. Total stockholders' equity at June 30, 2013 was $91.2 million, a decrease of $1.8 million, or 1.9%, from $93.0 million at December 31, 2012. The decrease in stockholders' equity was a result of decrease in accumulated other comprehensive income of $4.0 million at June 30, 2013 resulting from a decrease in the fair value of mortgage-backed and investment securities reflecting the recent increase in interest rates. In addition, stockholders were paid quarterly dividends during the first six months of 2013 totaling $0.24 per share resulting in a reduction in stockholders' equity of $1.7 million. Offsetting these decreases in stockholders' equity was an increase as a result of $3.4 million of net income for the six months ended June 30, 2013.

ANALYSIS OF NET INTEREST INCOME

Oneida Savings Bank's principal business has historically consisted of offering savings accounts and other deposits to the general public and using the funds from such deposits to make loans secured by residential and commercial real estate, as well as consumer and commercial business loans. Oneida Savings Bank also invests a significant portion of its assets in investment securities and mortgage-backed securities both of which have classifications of available-for-sale and held-to-maturity. Our results of operations depends primarily upon net interest income, which is the difference between income earned on interest-earning assets, such as loans and investments, and interest paid on interest-bearing liabilities, such as deposits and borrowings. Net interest income is directly affected by changes in volume and mix of interest-earning assets and interest-bearing liabilities which support those assets, as well as the changing interest rates when differences exist in the repricing of assets or liabilities.

AVERAGE BALANCE SHEET. The following table sets forth certain information relating to our average balance sheet, average yields and costs, and certain other information for the three months and six months ended June 30, 2013 and 2012 and for the year ended December 31, 2012. For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities is expressed in thousands of dollars and rates. No tax equivalent adjustments were made. The average balance is computed based upon an average daily balance. Non-accrual loans and investments have been included in the average balances.


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TABLE 1. Average Balance Sheet.

                                                                     Three months ended June 30,                                                 Twelve Months Ended Dec. 31,
                                                        2013                                             2012                                                2012

                                       Average                                          Average
                                     Outstanding        Interest                      Outstanding        Interest                           Average             Interest
                                       Balance         Earned/Paid    Yield/Rate        Balance         Earned/Paid    Yield/Rate     Outstanding Balance     Earned/Paid     Yield/Rate
                                                                                                   (Dollars in Thousands)
  Assets
  Interest-earning Assets:
  Loans receivable                 $      322,570     $     3,754         4.66 %    $      290,256     $     3,760         5.18 %    $       296,156         $     15,126         5.11 %
  Investment and mortgage-backed
  securities                              262,830           1,772         2.70 %           269,080           1,903         2.83 %            256,853                7,273         2.83 %
  Federal funds                            20,836               6         0.12 %            26,181               7         0.11 %             22,178                   22         0.10 %
  Equity securities                         3,957              22         2.22 %             7,451              70         3.76 %              6,929                  344         4.96 %
  Total interest-earning assets           610,193           5,554         3.64 %           592,968           5,740         3.87 %            582,116               22,765         3.91 %
  Non interest-earning Assets:
  Cash and due from banks                  10,795                                           11,414                                            11,154
  Other assets                             85,711                                           82,956                                            82,691
  Total assets                     $      706,699                                   $      687,338                                   $       675,961
  Liabilities and Stockholders'
  Equity
  Interest-bearing Liabilities:
  Money market deposits            $      179,994     $       156         0.35 %    $      188,085     $       203         0.43 %    $       176,382         $        751         0.43 %
  Savings accounts                        126,126              85         0.27 %           109,334              76         0.28 %            111,387                  303         0.27 %
  Interest-bearing checking                74,723              15         0.08 %            68,045              14         0.08 %             67,322                   55         0.08 %
  Time deposits                           141,921             380         1.07 %           137,053             408         1.20 %            137,250                1,630         1.19 %
  Borrowings                                1,810              14         3.10 %            11,228             118         4.23 %             10,481                  431         4.11 %
  Notes payable                               835               6         2.88 %               137               1         2.94 %                109                    3         2.75 %
  Total interest-bearing
  liabilities                             525,409             656         0.50 %           513,882             820         0.64 %            502,931                3,173         0.63 %
  Non-interest-bearing
  Liabilities:
  Demand deposits                          75,439                                           71,293                                            72,288
  Other liabilities                        11,556                                           12,795                                            10,728
  Total liabilities                $      612,404                                   $      597,970                                   $       585,947
  Stockholders' equity                     94,295                                           89,368                                            90,014
  Total liabilities and
  stockholders' equity             $      706,699                                   $      687,338                                   $       675,961
  Net Interest Income                                 $     4,898                                      $     4,920                                           $     19,592
  Net Interest Spread                                                     3.14 %                                           3.23 %                                                 3.28 %
  Net Earning Assets               $       84,784                                   $       79,086                                   $        79,185
  Net yield on average
  interest-earning assets                                    3.21 %                                           3.32 %                                                 3.37 %
  Average interest-earning assets
  to average interest-bearing
  liabilities                                              116.14 %                                         115.39 %                                               115.74 %


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                                                                      Six Months Ended June 30,                                                   Twelve Months Ended Dec. 31,
                                                        2013                                             2012                                                 2012

                                       Average                                          Average
                                     Outstanding        Interest                      Outstanding         Interest                           Average             Interest
                                       Balance         Earned/Paid    Yield/Rate        Balance         Earnest/Paid    Yield/Rate     Outstanding Balance     Earnest/Paid    Yield/Rate
                                                                                                   (Dollars in Thousands)
  Assets
  Interest-earning Assets:
  Loans receivable                 $      319,149     $     7,481         4.69 %    $      289,656     $      7,568         5.23 %    $       296,156         $     15,126         5.11 %
  Investment and mortgage-backed
  securities                              256,274           3,495         2.73 %           257,690            3,710         2.88 %            256,853                7,273         2.83 %
  Federal funds                            18,450              10         0.11 %            30,118               13         0.09 %             22,178                   22         0.10 %
  Equity securities                         4,565              46         2.02 %             7,236              140         3.87 %              6,929                  344         4.96 %
  Total interest-earning assets           598,438          11,032         3.69 %           584,700           11,431         3.91 %            582,116               22,765         3.91 %
  Non interest-earning Assets:
  Cash and due from banks                  11,195                                           11,701                                             11,154
  Other assets                             85,678                                           81,458                                             82,691
  Total assets                     $      695,311                                   $      677,859                                    $       675,961
  Liabilities and Stockholders'
  Equity
  Interest-bearing Liabilities:
  Money market deposits            $      174,886     $       298         0.34 %    $      184,530     $        402         0.44 %    $       176,382         $        751         0.43 %
  Savings accounts                        122,663             161         0.26 %           107,610              145         0.27 %            111,387                  303         0.27 %
  Interest-bearing checking                74,896              29         0.08 %            67,037               27         0.08 %             67,322                   55         0.08 %
  Time deposits                           140,272             753         1.08 %           137,301              834         1.22 %            137,250                1,630         1.19 %
  Borrowings                                2,320              42         3.65 %            11,114              235         4.25 %             10,481                  431         4.41 %
  Notes payable                               896              14         3.15 %               160                3         3.77 %                109                    3         2.75 %
  Total interest-bearing
  liabilities                             515,933           1,297         0.51 %           507,752            1,646         0.65 %            502,931                3,173         0.63 %
  Non-interest-bearing
  Liabilities:
  Demand deposits                          74,287                                           69,582                                             72,288
  Other liabilities                        11,085                                           11,520                                             10,728
  Total liabilities                $      601,305                                   $      588,854                                    $       585,947
  Stockholders' equity                     94,006                                           89,005                                             90,014
  Total liabilities and
  stockholders' equity             $      695,311                                   $      677,859                                    $       675,961
  Net Interest Income                                 $     9,735                                      $      9,785                                           $     19,592
  Net Interest Spread                                                     3.18 %                                            3.26 %                                                 3.28 %
  Net Interest Earning Assets      $       82,505                                   $       76,948                                    $        79,185
  Net yield on average
  interest-earning assets                                    3.25 %                                            3.35 %                                                 3.37 %
  Average interest-earning assets
  to average interest-bearing
  liabilities                                              115.99 %                                          115.15 %                                               115.74 %


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RESULTS OF OPERATIONS

General. Net income for the three months ended June 30, 2013 was $1.5 million compared to $1.9 million for the three months ended June 30, 2012. For the three months ended June 30, 2013, diluted net income per share was $0.21 as compared with diluted net income per share of $0.28 for the three months ended June 30, 2012. Net income for the six months ended June 30, 2013 was $3.4 million compared to $3.9 million for the six months ended June 30, 2012. The decrease in net income for both the three month and six month periods is primarily the result of an increase in non-interest expense partially offset by an increase in investment gains, an increase in non-interest income, a decrease in the provision for loan losses and a decrease in the provision for income taxes.

Net income from operations for the three months ended June 30, 2013, excluding the non-cash charges and benefits to earnings, as referenced in the table below, was $1.3 million or $0.18 diluted net income per share compared to net income from operations for the three months ended June 30, 2012 of $1.7 million or $0.25 diluted net income per share. Net income from operations for the six months ended June 30, 2013, excluding the non-cash charges and benefits to earnings, as referenced in the table below, was $2.8 million or $0.41 diluted net income per share. This compares to net income from operations for the six months ended June 30, 2012 of $3.4 million or $0.50 diluted net income per share. The decrease in operating earnings during the six months ended June 30, 2013 as compared with the same period last year was primarily the result of an increase in non-interest expense supporting the continued investment in and growth of the Company's insurance and other non-banking subsidiaries. Partially offsetting the increase in non-interest expense was an increase in non-interest income, an increase in net investment gains, a decrease in the provision for loan losses and a decrease in the provision for income taxes. The table below summarizes the Company's operating results excluding these cumulative non-cash benefits related to the change in fair value of trading securities in each period.

Reported Results and Operating Results/Non-Gaap
(excluding non-cash gains and losses recognized under the fair value option)
(All amounts in thousands except net income per diluted share)
                                                  Three Months Ending           Three Months Ending
                                                     June 30, 2013                 June 30, 2012
Net income attributable to Oneida Financial
Corp.                                         $               1,492         $               1,899
Less:
Change in fair value of investments                            (305 )                        (241 )
Income tax effect                                                82                            63
Operating results attributable to Oneida
Financial Corp.                               $               1,269         $               1,721
Reported net income per diluted share         $                0.21         $                0.28
Operating net income per diluted share        $                0.18         $                0.25
. . .
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